If you’re a CFO in the automotive manufacturing sector, you’re dealing with lots of complexity.
Your responsibilities might involve making sure the business is sourcing parts from around the world at the best quality and price. You could be responsible for signing off on the finances to be spent in areas such as design, technology, marketing and advertising.
And you’ll also need to address taxation and regulation, as well any other economic considerations when thinking about returns from capital investment, profitability and cash flow.
Your role is likely to have broadened, meaning you are increasingly asked to make decisions when it comes to the business strategy side of things. Automotive manufacturers now have unprecedented amounts of competition, with emerging companies competing with multinational giants across international borders and in multiple markets.
Growth in emerging markets
Globally, there is a cool down of automotive demand but you should understand the potential for growth in the emerging markets. According to PwC, growth markets such as China, India, South East Asia and North Africa are the main engine for volume growth in the automotive industry worldwide, driving an 18.8 million increase in vehicle assembly volumes from 2016 to 2023.
As a CFO, you must help your business take full advantage. Financially, your business could require a geographical alignment between global sales and production, while any expansion in emerging markets will require business activity that needs your backing and support.
You must consider the following four points:
1. A long-term coherent strategy, rather than individual opportunistic decisions
With the use of big data and analytics, you can support business decisions by using data to uncover patterns, trends and insights.
2. Necessary capabilities built step by step, rather than through a one-time effort
You have a major influence on business strategy, as the thorough analysis of information such as sales data can reveal the initiatives that should be prioritised.
3. Decisions on which cases require proactive investment to secure further business
Through financial management, you’ll have a vital part to play in freeing up the money needed, at the right times, for the right investments.
4. The consideration of alliances with domestic manufacturers and distributors
Whether it’s regular activities such as the addition of partner suppliers to the supply chain, to bigger initiatives like mergers and acquisitions, you and your finance team must be there to make sure processes run smoothly with the aid of technology such as enterprise management software.
Prepare your automotive business for changes in demand
There are also global changes that will require automotive companies to move quickly. For example, in the US there is the renegotiation of the North American Free Trade Agreement (NAFTA), which may limit market access to Mexico. In the UK is Brexit, which may involve higher duty rates for vehicles and parts going in and out of the country.
In the automotive business, any kind of regulation will directly affect the way vehicles look and the way components are built, as well as production costs and the way products are sold. Changes in regulation could force automotive businesses to make changes with their suppliers and where they manufacture vehicles at short notice.
In a blog post, Taneli Ruda, SVP and Managing Director of Thomson Reuters Onesource Global Trade, said: “New regulations could create a situation where companies must rapidly make changes to their supply base, switch suppliers from one country to another to satisfy certain origin requirements, or even reconsider the viability of existing manufacturing plants if they fall outside the parameters of an FTA or if they are no longer viable from a duty and regulatory perspective.
“The problem here is that regulation can change overnight and in many countries, it often does. And for supply chains where you have a lot of manufacturing and thousands and thousands of suppliers tied to the design of individual automobile models, it is very difficult for automakers and their suppliers to react as quickly as the regulators can change the regulations.”
The problem with spreadsheets
If your automotive business still happens to use spreadsheets, then you already have a problem – you’re making sales and operational plans through gut instinct. Data is old and inaccurate when shared manually and doesn’t support collaboration or data sharing. It’s impossible to create agile and accurate plans like this. Below are the issues with using spreadsheets, according to Aberdeen.
To deal with changes in demand, you need to support your business in building dispersed supply chains that spread production and capacity. And as commodities become scarce and supplier lead times shorten, you should also be thinking about supply chain planning to meet future product needs and commitments.
Nick Castellina, Research Group Director for Business Planning and Execution at Aberdeen, states that leaders are 78% more likely than followers to be able to integrate data into the extended enterprise.
He says: “This enables leaders to work effectively with the supply chain while improving visibility into materials, both upstream and downstream. This is the first piece of the puzzle that enables supply chain planners to work with product design, sales, and operations to make sure their needs are met.
“Master procurement scheduling is the foundation for supply chain planning. Leaders are more likely to use these capabilities to standardise procurement and delivery.”
Sales planning matters
Sales are what drives planning and supply chain planning. After all, what’s the point in investing heavily in the production of vehicles or automobile parts, if they are unlikely to be sold?
It’s why automotive manufacturers should have a fully integrated view of information, ensuring future commitments are made, and that it prepares them early enough to make changes with suppliers if there is a change in demand. They can also measure how marketing, material and production works, allowing for good management of product pricing and the maximisation of profits.
Inventory planning matters – go real time
Automotive manufacturers must also use sales and supply chain information to manage inventory and production – this includes stock level, production levels and variances between them. Through real-time inventory control, automotive manufacturers can quickly alter production plans to make sure there is enough product available.
Through a master production schedule, manufacturers of all types can schedule the labour, machine hours and warehouse space needed, as well as align the supply chains. ERP systems are usually the most effective way to ensure connect sales, supply chain and production data in one planning portal.
Support the business to make the right spending decisions
When it comes to technology, Brian Peccarelli, President of Tax and Accounting at Thomson Reuters, says: “We’re living in a world where original equipment manufacturers, tech companies and third-party suppliers are vying for control of the automobile ‘centre stack’, which has become a more desirable feature to many customers than the engine.
“But manufacturers cannot afford to be distracted by the latest bright, shiny thing.
“Rather, they need to focus on what they’re best at – integrating technologies into a complex system, regardless of whether those technologies are homegrown or outsourced from third parties.”
Brian believes your finance department plays a key role in enforcing discipline, allowing senior management and research departments to make sure innovation is profiting the business as much as possible.
He says CFOs must be responsible for helping a business:
- Get the right data – comprehensive information from across the business that captures not just high-level profit-and-loss data but also regional information, including changes in local regulatory policy and tax exposures.
- Track and forecast the effect of such things as the changing regulatory and tax consequences of incorporating new wireless connectivity into cars.
CFOs are key in decision-making and where funding is allocated. Data is important – whether they’re looking at sales data from various countries, or business intelligence to make plans on what to research, develop and acquire.
You must closely investigate predictive analytics technology, which will allow businesses to uncover patterns, trends and insights from massive sources of data, and make decisions about a future business strategy. According to Aberdeen Group, here are some of the business benefits for finance executives using predictive analytics over companies that aren’t.
The cloud matters
Your automotive business – and indeed many manufacturers and suppliers – may have already started on its journey with Industry 4.0, also known the fourth Industrial Revolution.
The cloud is vital – many technologies considered Industry 4.0 such as the Internet of Things (IoT) need the connectivity offered by the cloud to work. It offers up the possibility of fully connected and flexible “smart factories” – involving the use of intelligent robots and 3D printing.
Automotive manufacturers can consider using the cloud for an ERP solution, which supports the technology that allows them to access useful data, ensuring manufacturing processes are efficient, agile and automated.
Cloud ERP means companies can truly become “connected companies”, as it provides a real-time source of data and communication across geographic boundaries. Cloud solutions will be continuously updated, which also means you get support for new best practices, regulations and technologies.
As well as electric cars, the “connected car” is also a challenge to automotive manufacturers, both old and new. Thanks to the cloud, the connected car can now act as a communications hub that can transmit and receive data.
It offers huge potential – it’s what makes the possibility of autonomous driving possible, while the transfer of data makes it possible to connect the car to the outside world and enhance the driver experience.
Many of today’s cars are packed with technology and usually focus on internal functions. However, it’s becoming more common for vehicles to offer internet connections that can provide data to external sensors.
This can create important benefits for drivers such as lower insurance costs, concierge services, and the reduction of congestion and accidents.
As a CFO, it’s crucial to support a strategy that considers the growth in popularity of connected cars. To conclude, you might need to advise your business to:
- Think about offering connected technology or make investments in technology companies that are working in the space.
- Invest and gain access to IP and solutions that can protect against future competitive threats.
- Consider increasing the skills of the workforce, bringing in experts who specialise in areas such as connected technology, big data and the cloud.